Polaris - Weak Finish to 2016 Due to Recalls

Polaris released financial information this morning which tells a host of stories about the challenges they faced last year.

The manufacturing corporation which includes Victory, Indian motorcycle brands as well as building the Slingshot, off-road vehicles and snowmobiles, has been making all the wrong headlines over the last few months. Between recalls issued for some of its off-road vehicles and Indian motorcycle to ending production for Victory Motorcycles, the ride from last year to this has been bumpy to say the least.

All these tough times filled the latest financial results from Polaris released this morning. How tough were they? The company's stock price fell 3 percent in early morning trading.

However, Polaris’ fourth quarter’s bottom line was up 10 percent, comparing 2016 sales of $1,217.8 to $1,105.6 million for the fourth quarter of 2015. This surprise result against the backdrop of tough times and rough sales is attributed to its recent acquisition of the Transamerican Auto Parts retail chain. On November 10, 2016, the Company completed the acquisition of TAP, a vertically integrated manufacturer, distributor, retailer and installer of off-road Jeep and truck accessories, for an aggregate consideration of $669 million.

“2016 was a difficult and challenging year for Polaris, but our culture is geared to deal head on with adversity and learn from it, and that’s what we did in 2016. In response to a series of recalls, we took the necessary steps to ensure that Polaris vehicles deliver the quality, safety and performance that our customers expect. We are relying on these enhanced improvements, consistent execution, and aggressive innovation to regain our footing as the ‘Best in Powersports’,” commented Scott Wine.

For the full year ended December 31, 2016 the Company reported sales of $4,516.6 million, a decrease of 4 percent versus $4,719.3 million in the prior year.

Taking everything to do with motorcycles, including its PG&A related sales, decreased 35 percent in the 2016 fourth quarter to $105.7 million. Polaris explains the drop in two ways. First, there were plenty of inventory available in the fourth quarter of 2015 for dealers to sell. This wasn’t the case in 2016, with motorcycle production reduced motorcycle production to allow for final upgrades to be made to the paint system in Spirit Lake, IA.

Readers with good memories may remember this isn’t the first time the Spirit Lake paint system has been a fly in the ointment for Polaris motorcycle sales, but now it appears to be fully up and running.

One of the hot products for Polaris, its three-wheeled roadster the Slingshot, faced a recall late last year which impacted both product availability as well as how well the model performed.

North American consumer retail demand for the Polaris motorcycle segment, including Victory, Indian Motorcycle and Slingshot, was down mid-single digits percent during the 2016 fourth quarter while the overall motorcycle industry retail sales, 900cc and above, declined low-single digits percent in the 2016 fourth quarter.

Indian Motorcycles retail sales increased about 20 percent while Victory retail sales were down mid-single digits percent during the quarter. This could’ve been the road that led to Victory riding off into the sunset.

Overall, Polaris expects see 10 to 13 percent increase in sales in 2017 and of course continue to grow into its acquisition of TAP.

“The entire Polaris team is committed to superior execution, improved product safety and quality, enhanced dealer relations, and earning the trust our customers and stakeholders place in the Polaris brand, in 2017 and beyond,” commented Scott Wine. “We are accelerating our research and development investments to again win the ORV product game, focusing on the successful integration of TAP, and developing our competitive position in Motorcycles, all of which will drive increasing shareholder value in the future.”

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